Master of Financial Economics - Structure

Structure

Masters in Financial Economics are usually one to one and a half years in duration, and typically include a thesis or research component. The programs require a bachelor's degree prior to admission, but do not (usually) require an undergraduate major in finance or economics; a usual requirement is exposure to calculus, statistics and probability, and sometimes linear algebra and differential equations. Many programs include a review of these topics as an initial bridging / refresher course.

The curriculum is distributed between theory, applications, and modelling, with the emphasis on each differing by university, as above.

• The theory component centres on decision making under uncertainty in the context of the financial markets, and the resultant economic and financial models. The degree essentially explores how rational investors would apply decision theory to the problem of investment. Investment under "certainty" is initially considered (Fisher separation theorem, "theory of investment value", Modigliani-Miller theorem). "Choice under uncertainty" is then introduced, and the twin assumptions of rationality and market efficiency lead to modern portfolio theory (the CAPM), and to the Black Scholes theory for option pricing. Where the program emphasizes economics, the curriculum is extended: it explores phenomena where these assumptions do not hold (noise trading, market microstructure, behavioural finance) and it discusses models which are further generalised (arbitrage pricing theory & Fundamental theorem of arbitrage-free pricing, continuous time finance) or extended (Multi-factor models, models of the short rate, Intertemporal CAPM, Black–Litterman model). Coursework here is often titled "Asset pricing" and "Corporate finance theory".

• Application of the economic principles includes asset allocation and valuation, and covers specific financial instruments - such as fixed income, equities, derivatives, foreign exchange - and their portfolios. The aim here is twofold: firstly, to complement the theory; secondly, providing graduates with practical market knowledge. In the economics-focused degrees, this coverage is often of secondary importance, while in the professional degrees it is a major component, and often includes separate course work in (practical) corporate finance, portfolio management and financial risk management. Macroeconomics is also usually included; often though, as opposed to covering macroeconomic theory in general, the topics are applied and / or finance related with a focus on modelling and forecasting the relationships between asset classes and their expected returns.

• The modelling curriculum complements both of the above. The theory is augmented via the study of econometrics, financial time series and statistical modelling, with a focus on the empirical and statistical testing of economic theory, and on developing and documenting new econometric models. Students are taught to model using statistical packages such as SAS and EViews. The applications are reinforced through the computer based implementation of the more complex problems (often including numeric methods for option pricing, Value at risk, constructing efficient portfolios and yield curve modeling). Here, though, the focus is typically on the concept as opposed to the modelling, per se, and may therefore be limited to the spreadsheet environment: Computational finance is the domain of specialized degrees, although some Financial Economics programs do emphasize mathematical modelling and programming - see further below.